GM to invest 3.1 bln in new Astra car in Europe

SteveMcGrath

(Updates an item published at 1429 GMT, adding union comment.)

FRANKFURT (MarketWatch) -- The European division of General Motors Corp.
GM, -1.50%
Tuesday said it plans to produce the next generation of its Astra model in the U.K., Germany, Poland and Sweden, casting doubt on the future of its Antwerp plant in Belgium.

In a statement, the company said it will invest a total of EUR3.1 billion in the next generation compact Astra car, its best-selling model in Europe that is sold under the Opel and Vauxhall brands. It is seeking a 30% productivity rise compared to the current model at the plants where it is built.

GM's move is part of a broader effort to turn around its European operations, which - like those of many mass-market automakers in Europe - has been burdened by overcapacity and growing competition from lower-cost Asian rivals, such as Toyota Motor Corp.
TM, -0.99%

GM said it will stop production of the Astra at its Antwerp plant, though it said it wouldn't close the plant. The new Astra is expected to replace the current model in early 2010.

"No decision has yet been taken on future production (at Antwerp), but we will work on options for assembly operations at fair volumes," together with unions, GM said in a statement.

"Product allocations are extraordinarily difficult decisions to take," Carl-Peter Forster, president of General Motors Europe, said in the statement.

"All of our Western European plants have significantly improved over the past few years and are now very close in terms of the various measures of performance, such as cost, productivity and quality. In the end, it is a strategic decision based on a number of factors such as capacity planning, brand and market considerations, as well as ongoing restructuring activities," he said.

There has been widespread speculation that GM Europe could close one or more of its manufacturing plants in Western Europe as it moves production east and increasingly focuses on bolstering sales in Russia, its main growth market.

It is currently constructing a new manufacturing plant on the outskirts of St. Petersburg, and in March said it would double the planned capacity of the plant to 70,000 vehicles due to soaring demand in Russia. It sold 132,600 vehicles in Russia in 2006, up 73% from 76,578 in 2005.

In its statement, GM said it wants more productivity from all its plants as it looks to boost European compact car output to 750,000, from 535,000 in 2006.

"The automotive business remains very challenging, and GM Europe must continue to focus on increasing productivity and efficiency in order to compete effectively," Forster said. "Even with an increase (in compact car production), adjusting capacity to meet demand remains a challenge for GM as it is for other automakers worldwide," he added.

The news will be welcomed in the U.K., where GM's Ellesmere Port plant had been thought at greatest threat of possible closure after GM last year cut a shift at the plant with the loss of 900 jobs.

"There is no doubt in my mind the most important reason behind (GM's) decision was the productivity, quality and commitment of the workforce," said Tony Woodley, general secretary of the U.K.'s Transport and General Workers Union. He praised the support of U.K. Chancellor Gordon Brown, who he said had provided sizable grant aid.

GM's Antwerp plant currently employs 4,500 people producing three- and five-door versions of the Astra and the Astra minivan. Cutting a single shift at the plant would reduce headcount by 1,400.

In its statement, GM said it would work with unions to identify the extent of the headcount reductions. Job losses will start from this summer as production of the current Astra model starts to be reduced in line with an expected fall in demand as the product cycle comes to an end.

In a separate statement, GM said its decision to allocate the new Astra to the four plants had been taken with the agreement of the European Employee Forum, the umbrella body representing GM's European unions.

"Our main target was to avoid a plant closure, and the serious willingness of the company to look into alternative solutions for the Antwerp plant is what we have requested from the very beginning," Klaus Franz, chairman of the European Employee Forum, said in the second statement.

However, workers at the Antwerp plant took strike action Tuesday in protest at GM's decision. "We are very disappointed," said Eddy De Decker, provincial secretary for the CSC union. "It means 1,400 jobs will go this year, and then we don't know what will happen."

De Decker added it wasn't immediately clear how long the strike would last. "We want information and security," he said.

Belgian Prime Minister Guy Verhofstadt called the news a disappointment.

He said he had a telephone conversation with GM's European President Carl-Peter Forster and insisted a dialogue be started with the aim of assuring a new future for the Antwerp plant. The prime minister said GM management had promised to open discussions on the future of the plant in a matter of weeks.

As well as Ellesmere Port, which now employs 2,200, the new generation Astra will be produced at Bochum in Germany, which employs 4,900, Trollhattan in Sweden where 2,150 are employed and Gliwice in Poland, which has a staff of 2,800.

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